BoB, Canara draw up PLRs

State-owned banks, Bank of Baroda (BoB) and Canara Bank have decided to peg their benchmark prime lending rates (BPLRs) at 10.50 per cent and 10.75 per cent, respectively, with effect from January 1, 2004.

Currently, prime lending rates of both banks' are 25 basis points higher than their respective BPLRs.

It may be recalled that Union Bank of India on December 11 became the first bank to announce its BPLR (at 10.75 per cent) as per the Indian Banks' Association's formula.

A couple of days back Punjab National Bank also fixed its BPLR at 10.75 per cent.

The rationale behind the BPLR is that it will bring about greater transparency in the pricing of lending products.

"The Bank has considered factors like cost of funds, operating expenses, capital cost, minimum margin to cover regulatory requirements of provisioning, profit margin and risks while fixing the BPLR. The BPLR would be reference rate around which most of the bank's lending would take place," said N S Khurana, general manager, BoB, said.

Both banks will dispense with their prime term lending rate and other tenor-linked rates once the BPLR comes into effect. Now all the lending rates will be linked to the BPLR.

As per the indicative guidelines of the IBA, interest rates for consumer durable loans, home loans etc. can be decided by banks themselves without reference to BPLR.

Khurana said BoB is working on the proposal of passing the benefit of reduction in the BPLR to this segment also through linking them with the BPLR.

The bank will announce its decision in this regard later.The benchmark prime-lending rate would add further transparency and uniformity to the lending rate.

Compared with the earlier system of tenor linked / maturity wise prime lending rates, the new system of single benchmark prime lending rate is simple and easy to understand by the customers.

Meanwhile,the State Bank of Mysore has announced a benchmark prime lending rate of 11 per cent as against the earlier PLR of 11.25 per cent and prime term lending rate of 11.75 per cent. The reduced rate will be effective from 1 January 2004.